Principles of cost accounting 17th edition vanderbeck test bank

CHAPTER 2: ACCOUNTING FOR MATERIALS An effective cost control system should include: a An established plan of objectives and goals to be achieved b Regular reports showing the difference between goals and actual performance c Specific assignment of duties and responsibilities d All of these are correct ANSWER: d An effective cost control system should include an established plan of goals and RATIONALE: objectives, reports comparing budgeted goals to actual performance, and assignment of specific duties and responsibilities to operating personnel POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: OTHER: Easy PRIN.EDWA.16.1 - Introduction AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Internal Controls Bloom's: Remembering To effectively control materials, a business must maintain: a Limited access b Combination of duties c Safety stock d None of these are correct ANSWER: a To control materials a business must maintain limited access, segregation of duties, and RATIONALE: accuracy in recording POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Internal Controls Materials Control Bloom's: Remembering Janet is the purchasing agent at Frameco Manufacturing Her duties include vendor selection and ordering materials Due to a recent economic downturn and resulting cut backs, Janet has been assigned the additional duty of preparing receiving reports after comparing the goods received to the purchase order This is an example of: a unlimited access to materials b independence of assigned functions c misappropriation of assets d a lack of segregation of duties ANSWER: d Because Janet’s job as a purchasing agent involves preparing the purchase orders and RATIONALE: she is also comparing items received to the purchase orders, there is a lack of segregation of duties This increases the potential for the misappropriation of assets, but Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS there is not enough information given to determine that a misappropriation has indeed occurred POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Internal Controls Materials Control Bloom's: Analyzing Marley Company hired a consultant to help improve its operations The consultant’s report stated that Marley’s inventory levels are excessive and cited several negative consequences to Marley as a result Which of the following consequences was not cited in the report? a Possible other uses for working capital now tied up in inventory b Production stoppages due to parts not being available c Higher property taxes and insurance costs d Large quantities of obsolete materials ANSWER: b It is important to maintain inventories of sufficient size and variety to meet production RATIONALE: needs However, if Marley’s inventories are excessive, it is likely that parts are available for production, but the excess inventory is resulting in higher costs related to holding those items such as property taxes and insurance and potential losses from obsolescence or deterioration Funds invested in inventories could be used for other purposes POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Reflective Thinking ACCT.AICPA.BB.07 - Critical Thinking BUSPROG.06 - Reflective Thinking IMA-Strategic Planning Materials Control Bloom's: Analyzing The data used to calculate the order point include all of the following except: a the costs of placing an order b the rate at which the material will be used c the estimated time interval between the placement and receipt of an order d the estimated minimum level of inventory needed to protect against stockouts ANSWER: a Calculating an order point is based on usage, lead time and safety stock The cost of RATIONALE: placing an order is used in determining the economic order quantity POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS ACCREDITING STANDARDS: AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Strategic Planning TOPICS: Materials Control OTHER: Bloom's: Remembering Murphy Company uses 3,000 yards of material each day to make hats It usually takes five days from the time Murphy orders the material to when it is received If Murphy’s desired safety stock is 6,000 yards, what is Murphy’s order point? a 6,000 yards b 12,000 yards c 15,000 yards d 21,000 yards ANSWER: d RATIONALE: 3,000 (daily usage) x (lead time) 15,000 Safety stock 6,000 Order point 21,000 POINTS: DIFFICULTY: Moderate LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning TOPICS: Materials Control OTHER: Bloom's: Applying What is the objective of the economic order quantity (EOQ) model for inventory? a To minimize order costs or carrying costs, whichever are higher b To minimize order costs or carrying costs and maximize the rate of inventory turnover c To minimize the total order costs and carrying costs over a period of time d To order sufficient quantity to economically meet the next period's demand ANSWER: c If the demand for the product can be determined because it is predictable, the essence of RATIONALE: any EOQ model for inventory is to minimize the total order costs and also minimize the total carrying costs POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Easy PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Remembering Order costs would include all of the following except: Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS a Receiving clerk’s wages b Storeroom keeper’s wages c Purchasing department’s telephone bill d Transportation in ANSWER: b Costs related to the purchase and receipt of materials are considered order costs while RATIONALE: costs related to the storage and maintenance of materials are considered storage costs The storeroom keeper’s wages would be a storage cost POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Understanding Expected annual usage of a particular raw material is 1,200,000 units, and standard order size is 10,000 units The invoice cost of each unit is $145, and the cost to place one purchase order is $105 The estimated annual order cost is: a $12,000 b $17,400 c $12,600 d $800,000 ANSWER: c RATIONALE: Annual order cost = Number of orders × Per order cost = = = POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: 1,200,000 units × $105 10,000 units 120 orders × $105 $12,600 Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Applying 10 Carrying costs would include all of the following except: a Warehouse rent b Inspection employees’ wages c Losses due to obsolescence d Property taxes ANSWER: b Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS RATIONALE: Costs related to the purchase and receipt of materials are considered order costs while costs related to the storage and maintenance of inventory are considered storage costs Inspection would typically happen upon receipt of goods making this an order cost POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Understanding TOPICS: OTHER: 11 The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year: Cost per unit $.05 18 16 10 Order cost Transportation-in on purchases Storage Insurance Total per year $800 Interest that could have been earned on alternate investment of funds What is the annual carrying cost per unit? a $ 21 b $ 29 c $ 34 d $ 44 ANSWER: c The carrying costs will consist of the per unit costs for storage, insurance, and interest on RATIONALE: the inventory investment Carrying costs: Storage Insurance Interest = Units required $.16 10 $800 10,000 Carrying costs POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: 08 $.34 Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Applying 12 The following data pertains to Western Company’s materials inventory: Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS Number of pounds required annually Cost of placing an order Annual carrying cost per pound of material What is Western Company’s EOQ? a 4,000 pounds b 800 pounds c 400 pounds d 200 pounds ANSWER: c RATIONALE: POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: 16,000 $20 $4 = 400 Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Applying 13 Expected annual usage of a particular raw material is 180,000 units, and standard order size is 12,000 units The invoice cost of each unit is $300, and the cost to place one purchase order is $80 Assuming the company does not maintain safety stock, the average inventory is: a 10,000 units b 7,500 units c 15,000 units d 6,000 units ANSWER: d RATIONALE: Average inventory = 12,000 (standard-size order) = POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: 6,000 units Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Applying 14 Arwen Company has correctly computed its economic order quantity at 500 units; however, management feels it would rather order in quantities of 600 units How should Arwen's total annual order cost and total annual carrying cost for an order quantity of 600 units compare to the respective amounts for an order quantity of 500 units? a Higher total order cost and lower total carrying cost b Lower total order cost and higher total carrying cost Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS c Higher total order cost and higher total carrying cost d Lower total order cost and lower total carrying cost ANSWER: b If orders were placed for 600 units instead of EOQ of 500 units, fewer purchase orders RATIONALE: would have to be placed to acquire the total units required for production, thereby reducing the total order cost However, due to the larger number of units ordered each time, the number of units stored would be greater and a higher total carrying cost would result POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Strategic Planning Materials Control Bloom's: Analyzing 15 The personnel involved in the physical control of materials includes all of the following except the: a Purchasing agent b Receiving clerk c Cost accountant d Production department supervisor ANSWER: c The cost accountant has the responsibility for the accounting records pertaining to RATIONALE: inventory valuation but not for the physical materials POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Internal Controls Materials Control Procedures Bloom's: Understanding 16 The employee who is responsible for preparing purchase requisitions is most likely the: a Storeroom keeper b Purchasing agent c Production supervisor d Receiving clerk ANSWER: a The storeroom keeper is usually the employer responsible for preparing purchase RATIONALE: requisitions when the stock is running low to notify the purchasing agent that the inventory needs to be replenished POINTS: DIFFICULTY: Moderate Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS LEARNING OBJECTIVES: PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Internal Controls TOPICS: Materials Control Procedures OTHER: Bloom's: Remembering 17 Sam Jones works at Seeker, Inc Sam’s duties include identifying where materials can be obtained most economically, placing orders and verifying invoices and approving them for payment Sam is a(n): a receiving clerk b accounts payable clerk c purchasing agent d production supervisor ANSWER: c The duties described are those of a purchasing agent The receiving clerk counts and RATIONALE: identifies materials received and prepares a receiving report The accounts payable clerk is responsible for issuing payment to vendors The production supervisor is responsible for preparing materials requisitions for materials needed for production POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Cost Management Materials Control Procedures Bloom's: Remembering 18 The form used to notify the purchasing agent that additional materials are needed is known as a: a Purchase order b Vendor's invoice c Receiving report d Purchase requisition ANSWER: d The storeroom keeper prepares a purchase requisition to notify the purchasing agent that RATIONALE: additional materials are needed POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Easy PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management Materials Control Procedures Bloom's: Remembering Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS 19 The form prepared by the purchasing agent and sent to the vendor to obtain materials is known as a: a Materials requisition b Purchase requisition c Purchase order d Vendor's invoice ANSWER: c The purchase order is prepared by the purchasing agent and sent to the vendor to order RATIONALE: materials POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Easy PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management Materials Control Procedures Bloom's: Remembering 20 A receiving report would include all of the following information except: a What the shipment contained b The purchase order number c The customer d The date the materials were received ANSWER: c It is unlikely the receiving report would contain the customer name; however, a listing of RATIONALE: what the shipment contained, the purchase order number and the date of the receipt would be necessary information used in matching the receiving report to the vendor’s invoice and the purchase order POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Cost Management Materials Control Procedures Bloom's: Remembering 21 Listed below are steps of purchasing and receiving materials: The receiving clerk prepares a receiving report Purchase requisitions are prepared to notify the purchasing agent that additional materials are needed The purchase of merchandise is recorded by the accounting department The purchasing agent completes a purchase order In which order would these events typically happen? a 4, 2, 3, Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS b 2, 4, 3, c 2, 4, 1, d 4, 2, 1, ANSWER: RATIONALE: POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: c The storeroom keeper will prepare a purchase requisition to notify the purchasing agent that additional materials are needed The purchasing agent will then complete a purchase order and send it to the vendor When the goods are received, the receiving clerk will prepare a receiving report which is compared to the vendor’s invoice and the purchase order At that time, the accounting department will record the purchase of the inventory items in the general ledger Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management Materials Control Procedures Bloom's: Understanding 22 Listed below are steps of procuring materials for production: The receiving clerk checks the quantity and quality of incoming materials The purchasing agent issue the purchase order to the vendor The production floor supervisor issues a materials requisition The storeroom clerk issues a purchase requisition In which order would these events typically happen? a 3, 2, 4, b 3, 4, 2, c 2, 1, 3, d 4, 2, 1, ANSWER: d The storeroom keeper will prepare a purchase requisition to notify the purchasing agent RATIONALE: that additional materials are needed The purchasing agent will then complete a purchase order and send it to the vendor When the goods are received, the receiving clerk will prepare a receiving report which is compared to the vendor’s invoice and the purchase order The production floor supervisor will issue a materials requisition to obtain inventory from the storeroom POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management Materials Control Procedures Bloom's: Understanding Cengage Learning Testing, Powered by Cognero Page 10 CHAPTER 2: ACCOUNTING FOR MATERIALS TOPICS: OTHER: BUSPROG.03 - Analytic IMA-Cost Management Scrap, Spoiled Goods and Defective Work Bloom's: Applying 64 During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: Original cost accumulation: Direct materials Direct labor Factory overhead $2,600 900 1,350 $4,850 Direct costs of reworking 10 units: Direct materials Direct labor Factory overhead $ $ 100 180 270 550 The rework costs were attributable to the exacting specifications of Job 122, and the full rework costs were charged to this specific job What is the cost per finished unit of Job 122? a $25.00 b $23.50 c $27.00 d $24.00 ANSWER: c $4,850 RATIONALE: Original cost Rework materials Rework labor Rework overhead Total cost Unit cost ($5,400/200) 100 180 270 $5,400 $27 POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.13 - LO5: Account for scrap materials, spoiled goods, and defective work ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Scrap, Spoiled Goods and Defective Work OTHER: Bloom's: Applying 65 Xander Company anticipates that usage of Component T will be 100 units daily, which equates to around 25,000 for the year The material is expected to cost $5 per unit Once an order is placed with its vendor, it takes five days to receive the goods, and the cost of placing each order is $50 As a result, Xander keeps 1,000 units on hand to avoid stockouts The carrying cost associated with each unit is $10 a Compute the order point b Determine the most economical order quantity ANSWER: Cengage Learning Testing, Powered by Cognero Page 35 CHAPTER 2: ACCOUNTING FOR MATERIALS (a) Order point = = = Expected usage during lead time + Safety stock (100 units × days) + 1,000 1,500 units (b) POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Moderate PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Applying 66 The Reddog Company predicts that 3,200 units of material will be used during the year The expected daily usage is 15 units, there is an expected lead time of 10 days, and there is a safety stock of 200 units The material is expected to cost $4 per unit It is estimated that it will cost $25 to place each order The annual carrying cost is $1 per unit a Compute the order point b Determine the most economical order quantity by use of the formula c Compute the total cost of ordering and carrying at the EOQ point ANSWER: (a) Order point = Expected usage during lead time + Safety stock = (15 units × 10 days) + 200 = 350 units (b) (c) Annual ordering cost = = Number of orders × Cost per order 3,200 Annual usage × $25 400 EOQ = × $25 = $200 Annual carrying cost Cengage Learning Testing, Powered by Cognero = Average inventory × Carrying cost per unit Page 36 CHAPTER 2: ACCOUNTING FOR MATERIALS Average inventory Annual carrying cost POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: = (1/2 × EOQ) + = (1/2 × 400) + Safety Stock 200 = 400 = 400 × $1.00 = $400 Challenging PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning Materials Control Bloom's: Analyzing 67 For the following materials control forms, please indicate the following: a who prepares the form; b who receives the form; and c the form’s intended purpose Purchase Requisition Materials Requisition Receiving Report Purchase Order Debit/Credit Memo ANSWER: Materials Control Form Preparer Purchase requisition Storeroom keeper Receiver Purchasing agent Production Materials requisition department supervisor Storeroom keeper Receiving report Purchase order Cengage Learning Testing, Powered by Cognero Receiving clerk Purchasing agent Purpose Notify purchasing agent that additional materials are needed To issue materials to the factory department for production Storeroom clerk To compare the vendor invoice and purchase order to make sure materials ordered were received To ensure all materials are received in the storeroom Vendor (supplier) Describes materials wanted, stating price and fixing delivery Purchasing agent Page 37 CHAPTER 2: ACCOUNTING FOR MATERIALS details Debit/Credit memo POINTS: DIFFICULTY: LEARNING OBJECTIVES: ACCREDITING STANDARDS: TOPICS: OTHER: Purchasing agent Vendor (supplier) To notify vendor of discrepancies in shipments Moderate PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials AACSB Reflective Thinking ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Cost Management Materials Control Procedures Bloom's: Understanding 68 The materials account of the Lankford Company reflected the following changes during January: 190 units @ $30 130 units @ $32 240 units 210 units @ $35 70 units Balance, January Received, January Issued, January 18 Received, January 20 Issued, January 30 Assuming that Lankford Company maintains perpetual inventory records, calculate the cost of the ending inventory at January 31 and the cost of the units issued in January using the FIFO method ANSWER: Received Date 1/1 1/5 Issued Quantity Unit Price Amount Quantity 130 32 4,160 1/18 1/20 1/30 190 50 210 35 Balance Unit Price 30 32 7,350 70 32 Amount Quantity 190 190 130 5,700 1,600 80 80 210 2,240 10 210 Unit Price 30 30 32 32 32 35 32 35 Amount 5,700 9,860 2,560 7,350 7,670 Ending Inventory: 220 units having a total cost of 7,670 (10 units x $32) + (210 units x $210) POINTS: DIFFICULTY: LEARNING OBJECTIVES: Cost of Units Issued: 310 units having a total cost of $9,540 (5,700 + 1,600 + 2,240) Moderate PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger Cengage Learning Testing, Powered by Cognero Page 38 CHAPTER 2: ACCOUNTING FOR MATERIALS ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.04 - Reporting BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Applying 69 The materials account of Hetzer Industries reflected the following changes during May : 180 units @ $30 60 units @ $32 80 units 100 units @ $34 150 units Balance, May Received, May Issued, May Received, May 27 Issued, May 31 Assuming that Hetzer maintains perpetual inventory records, calculate the cost of the ending inventory at May 31 and the cost of the units issued in May using the LIFO method ANSWER: Received Issued Balance Date 5/1 5/2 5/4 5/27 5/31 Unit Unit Price Amount Quantity Price Amount Quantity 180 60 32 1,920 180 60 20 30 600 60 32 1,920 160 100 34 3,400 160 100 50 30 1,500 100 34 3,400 110 Quantity Unit Price 30 30 32 Amount 5,400 7,320 30 30 34 4,800 30 3,300 8,200 Ending Inventory: 110 units having a total cost of $3,300 (110 x $30) Cost of Units Issued: 230 units having a total cost of $7,420 (600 + 1,920 + 1,500 + 3,400) POINTS: DIFFICULTY: Moderate LEARNING OBJECTIVES: PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.04 - Reporting BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Applying 70 The materials account of the Herbert Company reflected the following changes during August: Balance, August Received, August Issued, August Cengage Learning Testing, Powered by Cognero 18 units @ $200 units @ $210 units Page 39 CHAPTER 2: ACCOUNTING FOR MATERIALS 10 units @ $222 Received, August 15 15 units Issued, August 27 Assuming that Herbert Company maintains perpetual inventory records, calculate the cost of the ending inventory at August 31 and the cost of the units issued in August using the moving average method ANSWER: Received Issued Balance Date Quantity Unit Price Amount Quantity Unit Price Amount Quantity Unit Price Amount 8/1 18 $200.00 $3,600 8/2 $210.00 $1,260 24 202.50 4,860 8/8 $202.50 1,620 16 202.50 3,240 8/15 10 $222.00 $2,220 26 210.00 5,460 8/27 15 $210.00 3,150 11 210.00 2,310 Ending Inventory: 11 units having a total cost of $2,310 Cost of Units Issued: 23 units having a total cost of $4,770 (1,620 + 3,150) Unit cost calculations: $4,860 / 24 = $202.50 $5,460 / 26 = $210.00 POINTS: DIFFICULTY: Moderate LEARNING OBJECTIVES: PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.04 - Reporting BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Applying 71 The materials account of the Flynn Company reflected the following changes during May: 500 units @ $10 Balance, May 300 units @ $12 Received, May 400 units Issued, May 10 200 units @ $15 Received, May 15 300 units Issued, May 25 Assuming that Flynn Company maintains perpetual inventory records, calculate the ending inventory at May 31 and the cost of the units issued in May using each of the following methods: (a) First in, first out (FIFO) (b) Last in, first out (LIFO) (c) Moving average ANSWER: (a) FIFO: Received Issued Balance Date 5/1 Cengage Learning Testing, Powered by Cognero Quantity Unit Price Amount Quantity Unit Price Unit Amount Quantity Price 500 $10 Amount $5,000 Page 40 CHAPTER 2: ACCOUNTING FOR MATERIALS 5/5 300 $12 $3,600 5/10 400 5/15 200 15 $10 $4,000 3,000 5/25 100 200 10 12 1,000 2,400 500 300 100 300 100 300 200 10 12 10 12 10 12 15 100 200 12 15 8,600 4,600 7,600 4,200 Ending Inventory: 300 units having a total cost of $4,200 (100 units x $12) + (15 units x $15) Cost of Units Issued: 700 units having a total cost of $7,400 (4,000 + 1,000 + 2,400) (b) LIFO: Received Date 5/1 5/5 5/10 5/15 5/25 Issued Unit Unit Price Amount Quantity Price Amount Quantity 500 300 12 3,600 500 300 100 10 1,000 300 12 3,600 400 200 15 3,000 400 200 100 10 1,000 200 15 3,000 300 Quantity Balance Unit Price 10 10 12 Amount 5,000 8,600 10 10 15 4,000 10 3,000 7,000 Ending Inventory: 300 units having a total cost of $3,000 (300 x $10) Cost of Units Issued: 700 units having a total cost of $8,600 (1,000 + 3,600 + 1,000 + 3,000) (b) Moving Average: Received Date 5/1 5/5 5/10 5/15 5/25 Issued Balance Unit Unit Price Amount Quantity Price Amount Quantity 500 300 12 3,600 800 400 10.75 4,300 400 200 15 3,000 600 300 12.17 3,650 300 Unit Amount Price 10 5,000 10.75 8,600 10.75 4,300 12.17 7,300 12.17 3,650 Quantity Ending Inventory: 300 units having a total cost of $3,650 Cost of Units Issued: 700 units having a total cost of $7,950 (4,300 + 3,650) Unit cost calculations: Cengage Learning Testing, Powered by Cognero Page 41 CHAPTER 2: ACCOUNTING FOR MATERIALS $8,600 / 800 = $10.75 $7,300 / 600 = $12.16667 POINTS: DIFFICULTY: Challenging LEARNING OBJECTIVES: PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.04 - Reporting BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Applying 72 The following accounts are maintained by the Sprague Manufacturing Company in its general ledger: Materials, Work in Process, Factory Overhead, and Accounts Payable The materials account had a debit balance of $40,000 on November A summary of material transactions for November shows: (1) Materials purchased on account, $62,000 (2) Direct materials issued, $58,500 (3) Direct materials returned to storeroom, $1,200 (4) Indirect materials issued, $3,600 (5) Indirect materials returned to storeroom, $550 (6) Materials on hand were $200 less than the stores ledger balance a Prepare journal entries to record the materials transactions b Post the journal entries to T-accounts c What is the balance of the materials account on November 30? ANSWER: (a) (1) Materials Accounts Payable (2) (3) (4) (5) (6) Work in Process Materials 62,000 62,000 58,500 58,500 Materials Work in Process 1,200 Factory Overhead Materials 3,600 1,200 3,600 Materials Factory Overhead 550 Factory Overhead Materials 200 550 200 (b) Materials Payable Bal 40,000 | (2) 58,500 (1) 62,000 | (4) 3,600 (3) 1,200 | (6) 200 (5) 550 | Cengage Learning Testing, Powered by Cognero Accounts | (1) 62,000 Page 42 CHAPTER 2: ACCOUNTING FOR MATERIALS 103,750 | (2) 62,300 Work in Process 58,500 | (3) 1,200 (4) (6) Factory Overhead 3,600 | (5) 550 200 | (c) The balance of the materials account = $103,750 - $62,300 = $ 41,450 POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Applying 73 The following decisions and transactions were made for the Sanders Company in May: May The production manager informed the storeroom keeper that the forecasted usage of Component X is 3,000 units There are 1,500 units on hand, each having a unit cost of $20 The company maintains a minimum stock of 1,000 units The storeroom keeper notifies the purchasing agent that the company will need 2,500 units of X to meet May’s production needs and maintain a minimum inventory of 1,200 units May The purchasing agent checks with a number of vendors and orders 2,500 units of Component X Unfortunately, the price has gone up to $25 May The shipment of Component X is received and inspected The units are in good condition and the company received the number of units it ordered May The invoice covering Component X is received from the vendor and approved for payment May 21 The May invoice is paid in full May 31 During the month, 2,950 units of Component X are issued to production The company uses FIFO costing and a job order cost system May 31 An inventory of the storeroom is taken at the end of the day and there are 1,040 units of Component X on hand (a) Prepare a table to answer the following questions: (1) What forms, if any, were used? (2) What entry, if any, was recorded? (b) Calculate the balance in the Materials account at May 31 ANSWER: Date Form Account May Purchase requisition No entry May Purchase order No entry May Receiving report No entry Cengage Learning Testing, Powered by Cognero Debit Credit Page 43 CHAPTER 2: ACCOUNTING FOR MATERIALS May May 21 May 31 May 31 Materials Accounts Payable 62,500 Accounts Payable * Cash 62,500 Materials requisition Work in Process ** Materials 66,250 None Approved voucher Inventory report * 2,500 units x $25 = $62,500 ** FIFO Basis: Beginning Inventory Received Total available Issued (2,950 units) Per perpetual records @ 5/31 Per physical inventory @ 5/31 Inventory adjustment needed 62,500 62,500 66,250 Factory Overhead *** Materials 250 1,500 units @ $20 2,500 units @ $25 4,000 units (1,500) units @ $20 (1,450) units @ $25 1,050 units @ $25 1,040 units 10 units @ $25 $30,000 62,500 92,500 (30,000) (36,250) 26,250 250 ** (1,500 x $20) + (1,450 x $25) = $66,250 *** 10 x $25 = $250 (b) Units in inventory at May 31 = 1,040 units @ $25 = $26,000 per above POINTS: DIFFICULTY: Challenging LEARNING OBJECTIVES: PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Materials Control Procedures Accounting for Materials OTHER: Bloom's: Analyzing 74 The Outdoor Manufacturing Company produces sporting equipment The company maintains a single raw materials inventory account for both direct and indirect materials The following information came from the factory ledger accounts for December: Raw Materials, December Work in Process, December Finished Goods, December Raw materials purchases (during December) Direct labor Repairs and maintenance Indirect materials Utilities Cengage Learning Testing, Powered by Cognero $ 45,500 125,000 175,000 623,000 435,000 37,200 16,700 63,200 Page 44 CHAPTER 2: ACCOUNTING FOR MATERIALS Indirect labor Supervisors' salaries Raw Materials, December 31 Work in Process, December 31 Finished Goods, December 31 Compute the cost of direct materials used during the month of December ANSWER: Raw materials inventory, December Raw materials purchases Total materials available Less: Raw materials inventory, December 31 Raw materials used Less: Indirect materials used Direct materials used 38,200 18,300 43,600 135,000 150,000 $ 45,500 623,000 $668,500 43,600 $624,900 16,700 $608,200 Instructor Note: This question relates concepts from chapter to those learned in chapter POINTS: DIFFICULTY: Challenging LEARNING OBJECTIVES: PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the general ledger ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Accounting for Materials OTHER: Bloom's: Creating 75 Skeeter Company produces 100,000 insect repellent devices each day, and the average number of units in work in process is 150,000, with an average value of $300,000 The average annual carrying cost percentage is 30% a Determine the throughput time b Compute the annual carrying cost c If the same daily output can be achieved while reducing the work in process by 40%, determine the new throughput time d Compute the annual carrying cost given the information in requirement c ANSWER: a 150,000 / 100,000 = 1.5 days b $300,000 x 30% = $90,000 c 150,000 x 40% = 60,000 unit reduction (150,000 - 60,000) / 100,000 = days d 30% carrying cost x ((1-.4) x $90,000) = $16,200 POINTS: DIFFICULTY: Challenging LEARNING OBJECTIVES: PRIN.EDWA.16.12 - LO4: Account for inventories in a just-in-time (lean production) system ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning TOPICS: Just-in-Time Materials Control Cengage Learning Testing, Powered by Cognero Page 45 CHAPTER 2: ACCOUNTING FOR MATERIALS OTHER: Bloom's: Analyzing 76 Omari Assembly, Inc., which uses backflush costing, had the following transactions during the month of October : (a) (b) (c) (d) (e) (f) Purchased raw materials on account, $700,000 Requisitioned raw materials to production, $700,000 Distributed direct labor costs, $105,000 Manufacturing overhead incurred, $215,000 (Use Various Credits for the account in the credit part of the entry.) Completed all goods Sold goods for $1,500,000 on account Prepare journal entries to record the above transactions ANSWER: (a) Raw and In-Process Accounts Payable 700,000 700,000 (b) No entry (c) Conversion Costs Payroll 105,000 Conversion Costs Various Credits 215,000 (d) (e) (f) 105,000 215,000 Finished Goods Raw and In-Process 1,020,000 Accounts Receivable Sales 1,500,000 Cost of Goods Sold Finished Goods 1,020,000 1,020,000 1,500,000 1,020,000 POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.12 - LO4: Account for inventories in a just-in-time (lean production) system ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Just-in-Time Materials Control OTHER: Bloom's: Applying 77 Gilday Furniture Inc produces custom furniture Wood chips are an inevitable by-product of the cutting process, and are considered scrap Gilday is unable to use this scrap; however, the company has an agreement to sell the scrap at market prices to a local company that processes the wood chips to make industrial fillers Record the entries required for scrap under each of the following conditions: (a) The revenue received for scrap is to be treated as other income The market value of wood chips is stable and is currently $200 per ton The company has seven tons on hand Cengage Learning Testing, Powered by Cognero Page 46 CHAPTER 2: ACCOUNTING FOR MATERIALS (b) The revenue received for scrap is to be treated as a reduction in manufacturing cost, but cannot be identified with a specific job A firm price is not determinable for the scrap until it is sold It is eventually sold for cash of $800 (c) The revenue received for scrap is to be treated as a reduction in manufacturing cost, and five tons of scrap are related to a special job where the company made numerous round tables The market value of wood chips is stable and is currently $200 per ton 1,400 ANSWER: (a) Scrap Materials 1,400 Scrap Revenue (b) (c) Cash (or Accounts Receivable) Scrap Materials 1,400 Cash (or Accounts Receivable) Factory Overhead 800 1,400 800 Scrap Materials Work in Process 1,000 Cash (or Accounts Receivable) Scrap Materials 1,000 1,000 1,000 POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.13 - LO5: Account for scrap materials, spoiled goods, and defective work ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Scrap, Spoiled Goods and Defective Work OTHER: Bloom's: Applying 78 Moreland Corporation manufactures bells and whistles In June, 6,000 bells were completed on Job Order No BX46 On final inspection, 400 bells were rejected and transferred to the spoiled goods inventory to be sold at $.50 each Costs recorded on Job Order No BX46 follow: Direct materials Direct labor Factory overhead Prepare the journal entries to record the following: Charges for materials, labor, and factory overhead for Job Order No BX46 Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods, and the sale of the imperfect toys, if the loss on spoilage is charged to all jobs worked on during the period c Cost of the spoiled work, the transfer of the cost of the good bells to Finished Goods, and the sale of the imperfect ones, if the loss on spoilage is to be charged to Job Order No BX46 only (Round the new unit cost to the nearest whole cent, and assume part b, above, has not occurred.) ANSWER: (a) Work in Process $2,400 2,100 1,200 a b Cengage Learning Testing, Powered by Cognero 5,700 Page 47 CHAPTER 2: ACCOUNTING FOR MATERIALS 2,400 2,100 1,200 Materials Payroll (direct labor) Factory Overhead (b) Spoiled Goods (400 × $.50) Factory Overhead Work in Process (400 × $.95*) Finished Goods ((6,000 - 400) × $.95) Work in Process (c) 200 180 380 5,320 5,320 Cash Spoiled Goods 200 Spoiled Goods Work in Process 200 200 200 Finished Goods (5,600 × $.98*) Work in Process 5,488 5,488 200 Cash Spoiled Goods 200 * Cost per unit $5,700 / 6,000 = $.95 ** $5,700 - $200 5,600 = $.9821 rounded POINTS: DIFFICULTY: LEARNING OBJECTIVES: Moderate PRIN.EDWA.16.13 - LO5: Account for scrap materials, spoiled goods, and defective work ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Scrap, Spoiled Goods and Defective Work OTHER: Bloom's: Applying 79 Kami company manufactures engine components During the previous month, the Company manufactured 12,000 units of Component XRB for Job 3524 and incurred the following unit costs: $32.00 Direct materials 9.00 Direct labor 6.00 Factory overhead When the units were tested after production, 300 units did not meet specifications and needed further polishing work The unit cost of correcting the defects was: 3.00 Direct labor 2.00 Factory overhead a Prepare the journal entries to record the cost to correct the defective work under each of the following scenarios: If the cost of correcting the defective work is spread over all jobs that go through the production cycle Cengage Learning Testing, Powered by Cognero Page 48 CHAPTER 2: ACCOUNTING FOR MATERIALS If the defects resulted from the exacting specifications of Job 3524 b Under Scenario above, calculate the cost per unit of Job 3524 ANSWER: (a.) (1.)Factory Overhead (($3.00 + 2.00) x 300) Payroll (direct labor) ($3.00 x 300) Factory Overhead ($2.00 x 300) (2.)Work in Process (Job 3524) Payroll Factory Overhead (b.) Number of units produced Original cost per unit ($32.00 + 9.00 + 6.00) Total original cost Plus cost of correcting defective work Total cost of Job 3524 1,500 900 600 1,500 900 600 12,000 $ 47.00 $564,000 1,500 $565,500 $ 47.125 Cost per unit of Job 3524 ($565,500 / 12,000) POINTS: DIFFICULTY: Moderate LEARNING OBJECTIVES: PRIN.EDWA.16.13 - LO5: Account for scrap materials, spoiled goods, and defective work ACCREDITING STANDARDS: AACSB Analytic ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Cost Management TOPICS: Scrap, Spoiled Goods and Defective Work OTHER: Bloom's: Applying Cengage Learning Testing, Powered by Cognero Page 49 ... a period of rising prices, the use of which of the following cost flow methods would result in the highest cost of goods sold? a LIFO b FIFO c Weighted average cost d Moving average cost ANSWER:... RATIONALE: cost of $1.62 per unit, 80 of the units issued would have been assigned a cost of $1.55 per unit and the remaining 10 units issued on that date would have been assigned a cost of $1.40... Cengage Learning Testing, Powered by Cognero Page CHAPTER 2: ACCOUNTING FOR MATERIALS Number of pounds required annually Cost of placing an order Annual carrying cost per pound of material What